2013 (8) TMI 580 - AT - Customs

Tribunal Upholds Exclusion of Royalties in Customs Valuation

COMMISSIONER OF CUSTOMS (I), MUMBAI Versus MAX ATOTECH LTD

The Tribunal upheld the ld. Commissioner (Appeals)'s order, dismissing the Revenue's appeal regarding the inclusion of royalties and license fees related ... Valuation of imported goods - assessee made an import from their collaborator and associated companies the case was registered in GATT Valuation Cell for examination and valuation of goods imported by them - the department's case had been to load the royalty of technical know-how payable to the supplier - Held that:- The department could not show that the royalty which they wanted to add to the assessable value was a condition pre-requisite for sale and the assessable value was not a true transaction value in terms of Section 14(1)(a) - the royalty can be included in the assessable value in case there are conditions for sale of the goods being valued and in case such royalty and fees are not included in the price actually paid or payable. If the cost of technical know-how payment of royalty had no nexus with the working of the imported goods then such payment was not includable in the price of the imported goods – court relied upon Commissioner of Customs Vs. Ferodo India P. Ltd. (2008 (2) TMI 12 - Supreme Court ) and Collector vs. Essar Gujarat Ltd.(1996 (11) TMI 426 - SUPREME COURT OF INDIA) – decided against revenue Issues:- Interpretation of Rule 9(1)(c) of the Customs Valuation Rules, 1988 regarding inclusion of royalties and license fees related to imported goods in the assessable value.- Whether the running royalty paid on percentage of net sale price for manufacturing operation in India is includable in the price of imported goods.- Application of the decision in Collector vs. Essar Gujarat Ltd. 1996 (88) ELT 609 (SC) to the case.- Distinction between royalties and technical know-how paid as a condition of sale of goods and their inclusion in the assessable value.- Nexus between the cost of technical know-how payment of royalty and the working of imported goods.Analysis:The judgment pertains to an appeal filed by the Revenue against the order of the ld. Commissioner (Appeals) regarding the inclusion of royalties and license fees related to imported goods in the assessable value under Rule 9(1)(c) of the Customs Valuation Rules, 1988. The respondent imported goods from their collaborator and associated companies, leading to a dispute over the inclusion of running royalty paid for manufacturing operations in India. The Revenue contended that the running royalty should be included in the assessable value, citing the decision in Collector vs. Essar Gujarat Ltd. The respondent argued that the royalty and technical know-how paid were not a condition for the sale of goods, relying on the decision in CC vs. Ferodo India Pvt. Ltd.Upon careful consideration, the Tribunal analyzed the provisions of Rule 9(1)(c) and the concept of 'condition of sale.' It was observed that the royalty could be included in the assessable value only if it was a condition pre-requisite for sale, which was not established by the Revenue. The Tribunal found that the royalty/technical know-how was not a condition for the sale of imported goods, thus distinguishing the Essar Gujarat Ltd. decision. Referring to the Ferodo India P. Ltd. case, the Tribunal emphasized the necessity of a nexus between the technical know-how payment of royalty and the working of the imported goods for inclusion in the price.Ultimately, the Tribunal upheld the ld. Commissioner (Appeals)'s order, dismissing the Revenue's appeal for lack of merit. The judgment highlighted the importance of establishing a direct link between the technical know-how payment of royalty and the imported goods' functioning for inclusion in the assessable value, in accordance with Rule 9(1)(c) of the Customs Valuation Rules, 1988.